Philanthropy advice can be a useful add-on for clients
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Fifteen years ago, Sean Stannard-Stockton, senior principal at advisory company Ensemble Capital, received a call from what he calls a “very sophisticated high net worth client” directing the adviser to sell some stocks and to wire the proceeds to a non-profit organisation.
Mr Stannard-Stockton explained that if the client gifted the shares directly to the non-profit, the client would avoid capital gains tax and get an income tax deduction. The investor had not been aware that such a move was an option.
Ensemble, which is based in the San Francisco Bay Area, had been around for more than a decade, but did not include philanthropic planning as part of its financial advice. With this episode, the company’s philanthropic advice offering was born.
During the initial year of providing this add-on service, Mr Stannard-Stockton says, a multimillionaire Bay Area couple asked the advisory to launch and manage a $10m private foundation for them. The adviser withheld the clients’ names, but said they were well known for their philanthropic commitment. It was the couple’s first private foundation.
On the back of the new foundation’s success, the couple engaged the advisory company to primarily manage their personal wealth, increasing Ensemble’s philanthropic assets under management to more than $100m. Mr Stannard-Stockton now points to philanthropic advice as a significant driver of the RIA’s growth.
As of this year, about a quarter of Ensemble’s 200 or so clients have philanthropic planning incorporated into their portfolios. Taken together, these assets make up about a quarter of its $780m under management. They are held in charitable trusts, endowments, private foundations or other charitable vehicles.
Providing philanthropic planning also triggers client referrals, Mr Stannard-Stockton explains. “[High net worth individuals] don’t spend a lot of time talking about tax planning with their peers,” he says. “But they do like to talk about their philanthropic efforts.”
They invite peers to galas and other events, where “participating as an adviser is just more likely to trigger referrals”, he adds.
The advisory company also sees a competitive advantage with new clients because of its philanthropic offering which he says “really adds on and puts us in the lead”. But crucially, Ensemble does not tell its clients where to donate money.
“The majority of people already know their philanthropic priorities,” he says. “We want to help clients make their desired social impact in the most tax-efficient way possible”.
Ensemble advises clients on how to use investment vehicles to best serve their charitable goals. One of the group’s most-used vehicles is the private foundation.
“People assume you have to be billionaire investor Bill Gates to start a foundation,” he says.
But with online administration services, creating foundations for clients with as little as $1m to donate is viable. Ensemble’s clients have foundations ranging between $2m and $20m in assets.
The group also uses vehicles such as taxable corporations, donor-advised funds and charitable remainder trusts to maximise tax deductions. Each vehicle provides different benefits. Taxable corporations let clients avoid US non-profit regulations that prohibit political lobbying.
A donor-advised fund grants clients immediate tax deductions, while allowing clients to recommend how assets are given over time. Charitable remainder trusts also grant tax deductions, but the trust makes annual distributions to beneficiaries for a pre-determined period.
Occasionally, Ensemble connects clients with charities in its network. This helps give clients sight of the different opportunities available, but providing successful advice requires specialised knowledge.
Mr Stannard-Stockton holds a Chartered Adviser in Philanthropy designation issued by the American College of Financial Services. Another Ensemble adviser has a background in socially responsible investing. The company runs philanthropy education programmes for its entire staff.
Philanthropic planning is integrated into Ensemble’s overall wealth planning because, says Mr Stannard-Stockton, “for many high net worth individuals it is an integrated part of their life”.
It is a service “clients don’t always know they want until they hear about it”, he adds.
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